WASHINGTON, D.C., March 24 -- The International Finance Corporation (IFC) launched today its new series of investable stock indexes designed to help foreign investors assess the performance of emerging markets. IFC's current indexes measure market performance while the new Emerging Markets Investable Indexes will take into account foreign investor access to these markets at both the country and company level. As a result, the new indexes will provide a superior measure of the performance of a representative foreign investor portfolio in emerging markets and serve as performance measurement benchmarks for investors and fund managers. IFC, a member of the World Bank Group, is the world's leading publisher of data on stock markets in developing countries. IFC's Emerging Markets Data Base Unit compiles and produces an extensive commercial data base of more than 1,000 listed stocks. The new investable indexes evolved from IFC's widely-used global indexes which measure performance from the perspective of local inve
stors. In contrast, the new series will measure performance from the perspective of foreign investors, who are rapidly increasing portfolio investment in emerging markets. "The difference between the two sets of indexes is vital," said IFC Vice President Daniel F. Adams, "because foreigners often are legally prevented, in ways that local investors are not, from investing in certain companies' stocks and countries. Consequently, foreign investors have been looking for a neutral benchmark of performance that takes the restrictions on foreign investment into account. We believe that these new IFC indexes can serve that need."
With the new series, IFC expects to create a neutral benchmark that is consistent across borders, includes a representative sample of stocks in each market, and encompasses a broad range of markets. Together, the two series provide a complementary family of measures of stock market performance. In selecting stocks for the indexes, IFC looks at size and liquidity instead of potential return on investment. Its goal is to select a group of stocks in each market that represents the overall market without including every single listed stock. Although most markets have their own locally calculated indexes, the methods used for computing them are sufficiently different among markets so that international investors cannot effectively use them for comparative purposes. One of the principal benefits of a generally accepted benchmark for emerging markets is that the indexes can become a standard proxy for the asset class. Fund managers could then launch passively managed index funds based on the benchmark for investors
who want to invest in these markets, but who are unwilling to select individual stocks. IFC is working to develop such index funds and plans to license the indexes to fund managers. To ensure that the index methodology is designed to meet investor needs, IFC has established an advisory panel of experts in the field, including representatives from academia and pension fund and investment managers. With the new indexes, IFC also released a new publication, IFC Index Methodology, which details the construction of the indexes and the selection criteria for markets and individual stocks. IFC plans to publish its annual Factbook of Emerging Stock Markets in May, with information on more than 70 stock exchanges in developing countries, including the new exchanges in China, Eastern Europe and the former Soviet Union. (30)
